Businesses that use credit reports or provide information to consumer reporting agencies (“CRAs”) are subject to significant new duties under the Fair and Accurate Transactions Act, known as the “FACT Act.” Most of those duties become effective on December 1, 2004. The new duties and responsibilities are intended to improve the accuracy and integrity of the information in credit reports and to help prevent identity theft. This article briefly summarizes the new duties of those who use credit reports and those who provide information to CRAs.
Requirements of Users
The FACT Act imposes several significant new requirements of people who use credit reports. Some apply to all users, such as the Act’s new requirement that a person who uses a credit report meet special standards to ensure that information in, or derived from, a credit report is properly destroyed. Others relate only to lenders.
Before making a new loan, a lender must take special steps to identify its customer if the customer’s credit report includes a fraud or active duty alert, placed there by the customer. An active duty alert indicates that the customer is on active military duty and assigned away from his or her usual duty station.
A creditor who uses a credit report will be required to provide a new notice to a home mortgage borrower if the creditor uses a credit score in making the loan. A creditor who uses a credit report to vary the terms of credit to a consumer must notify new and prospective borrowers that it does so.
Duties of Furnishers
The FACT Act requires anyone furnishing information to a CRA to meet new federal guidelines to assure the accuracy and integrity of information provided to a CRA. In addition, if you furnish information to a CRA, you will be required to accept disputes about that information directly from the consumer. You will be obligated to investigate a dispute and report the results to the consumer within 30 days. You must also correct any errors discovered in your investigation.
Creditors that furnish certain national CRAs with negative information regarding credit extended to a consumer must disclose this fact to the consumer before providing the information or within 30 days after doing so.
Additionally, furnishers must block the reporting of information that is the result of an identity theft and block the sale of a debt that is the result of identity theft.
Other New Requirements
The FACT Act gives special treatment to medical information to help protect the consumer’s privacy. It limits the ability of a CRA to report medical information, limits the ability of a creditor to use medical information in determining a consumer’s eligibility for credit, and prohibits a user from sharing medical information with an affiliate unless certain exceptions are satisfied.
The FACT Act also prohibits an entity from using information about an affiliate’s customers to market to those customers unless the customers are given an opportunity to opt out of solicitations.
Getting Into Compliance
Businesses need to educate themselves on the requirements of the FACT Act and begin to work promptly on setting up policies and procedures that can go into effect by December 1, 2004. Unfortunately, the federal agencies charged with drafting regulations under the Act have not completed them, forcing the business community to try to comply without the benefit knowing what exactly will be required.
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Rodney D. Martin is a partner in our Grand Rapids office and is Chair of our Financial Services Group. He concentrates his practice in the areas of banking and consumer credit laws. He is listed in The Best Lawyers in America. You may call Rodney at 616.752.2138.
Warner Norcross & Judd is a full-service law firm with offices in Grand Rapids, Metro Detroit, Holland and Muskegon. Because each business situation is different, this information is intended for general information purposes only and is not intended to provide legal advice.